Wages 2002-12: A Tale of Two Trends

by Marc Bastow | July 26, 2012 6:30 am

[1]Heading into the 2012 election, voters will hear a great deal about employment, or lack of it. And as a corollary, wages will also be a hot topic. Depending on what you read or where you read it (and yes, that means for every statistic you can find two “experts” who disagree about it), wages for American families are going up or going down.

Actually, both statements are to a some extent true. How can you square those points? Take a look at the following chart from the Bureau of Labor statistics showing the trend line for median weekly income for 2002-2012:

Click to Enlarge A quick look at the chart shows unequivocally that median weekly wages have risen steadily during those years. So, why might the chart be somewhat simplistic?

The truth is that much of Americans have earned over the past decade depends largely on education and also, sorry to say, on race and sex. For African-Americans and women, the statistics suggest a lower scale of wage improvement, and for Americans with limited education (no degree beyond high school), the story is similar. (The BLS has all the details[2]).

The wage story continues into the area of household wealth, where the most recent release from the Federal Reserve[3], citing information collected for a Survey of Consumer Finances, showed the average household net worth of all homes surveyed in the U.S. from 2007 to 2010 was $498,800. With incomes going up, particularly for wealthier Americans, that figure looks promising.

Break that down just a bit, however, and a clearer picture starts to emerge: The data showed the median household net worth — the level at which half the households have more and half have less — was $77,300. That means the rich are doing so well that the average net worth of well-off Americans is actually 6.5 times that of a typical American family’s $11,892.

In other words, inequality of household net worth from the very well off to the rest of the population is quite significant, with a concentration of income and net worth lumped into the politically charged group some call the “1%.”

So how is this disparity created? Well nothing is as simple as it looks (or as politicians like to make it out to be), but the most simplistic of statements is the rich are getting richer, while the rest aren’t.

According to an AFL-CIO report as highlighted by CNNMoney [4]in 2010, chief executives at some of the nation’s largest companies earned an average of $11.4 million in total annual pay — 343 times more than a typical American worker.

Indeed, the disparity continued right into 2011 as the pay ratio between CEOs of the S&P 500 Index companies and U.S. workers widened to 380 times in 2011, according to the AFL-CIO’s latest website report[5].

Most interesting, of course, is that while CEO pay packages continue to rise, the stock market, as represented by the S&P 500, is down around 12% over the past five years (though it is up over 58% over the last 10 years).

Individual stocks and their CEOs are all over the board, so a broad generalization about CEO pay being out of line with corporate results isn’t an easy case to make, but those pay ratios sure make it look like something is out of kilter.

Want to know who some of the highest paid CEO’s were in 2011? Check 0ut this list[6] compiled by Forbes during 2011.

Is their any good news out there?

As it happens, just a bit. With the Federal Reserve trying its best to stimulate economic growth while at the same time fighting inflation, price levels have remained fairly tame over the last 10 years, providing consumers with a bit of a backstop against prices overtaking income gains.

The weekly income chart described earlier showed that in 2002 the weekly average earnings in the U.S. was $611, jumping up to $771 during the second quarter of 2012.

Surprisingly, according to a Bureau of Labor Statistics inflation calculator[7], the $611 made in 2002 has the buying power today of $999 — or $228 more than what inflation may have cost the average employee. In other words, inflation has remained lower than wage improvements, a very good thing, indeed for consumers.

The story of wages and wealth in the U.S. over the past decade is more complicated than saying simply that the highest paid among us are taking in an exorbitant amount of money relative to the rest of us. The economic slowdown and, more important, the housing debacle have taken a huge toll on the American wallet, undermining many gains in the middle class, while not having as much effect on wealthier Americans.

It’s hard not to argue, however, based on a significant amount of evidence, that earnings power is skewed toward the upper tier. Their earnings power continues to rise, with exorbitant pay packages and low tax rates on dividends and capital gains rates paying off handsomely for those fortunate enough to take advantage of the tax laws.

Clearly, more jobs, with better wages, can only help the U.S. in the future. But with the nation’s economy in a crab-like sidling movement, it will be a difficult road to navigate for many Americans.

Marc Bastow is an Assistant Editor at InvestorPlace.com.

Endnotes:

[Image]: http://investorplace.com/hot-topics/americas-jobs-challenge/

The BLS has all the details: http://data.bls.gov/cgi-bin/surveymost?le

the most recent release from the Federal Reserve: http://www.federalreserve.gov/pubs/bulletin/2012/PDF/scf12.pdf